Why Netflix and Amazon (probably) don’t mind users sharing passwords

It’s been an interesting week at Netflix, with US subscribers falling by 120,000.

Another interesting piece of Netflix news has been about password sharing. According to analysts MoffettNathanson, 14% of Netflix subscribers share their password, and only 6% share their Amazon password to access Prime video.

The reason why password sharing on Amazon Prime is much lower than Netflix is probably because it’s easy for a friend to purchase an Amazon product once you give them your password. Possibly just as undesirable – it’s straightforward for people to review purchases on your account once you have given them your password!

I’ve been asked a few times this week, why Netflix and Amazon don’t clamp down on password sharing. I think the answer lies with a comment from Spotify.

Think of those Netflix users who are using someone else’s password as ‘freemium’ subscribers. Spotify encourages freemium (non-paying, or trial) accounts to learn “that music is an important part of their life worth paying for”. And consider the data from those listeners, how Spotify can “learn from the biggest possible group of music fans in the world.”

Freemium places a user on the path to a sales conversion. It’s a far better path than traditional or digital marketing channels. When people share a password, it shares the value of the product, that might want to make them ultimately go and buy the product.

Netflix has a vastly different strategy to Spotify though. Netflix is testing the maximum price that users are willing to pay for the service. It recently increased the monthly subscription cost in the US from $11 to $13.

Spotify’s strategy is to keep building its subscriber base – a customer scale proposition rather than Netflix’s new price point.

The future

It won’t be much longer before we start seeing companies bundling these subscription services together.

For example, a Netflix and Spotify and say, Dropbox, or Adobe Creative Cloud, all available for monthly cost. Bundling will apply to digital services first, because of the negligible increase in cost per customer. It will naturally be harder for physical subscription services such as Peloton, Graze, Tails and Dollar Shave Club.

For the moment though, for companies providing digital services and products – it’s hard to argue with freemium.

Notes

The MoffettNathanson report was for their customers only, and this report has not been made more available on the Interweb just yet.

To be transparent – at home we have a family Spotify account and Amazon Prime, not Netflix. I do own some Netflix shares.

Please share this post with your contacts because it makes me feel better.